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1. Company Snapshot

1.a. Company Description

Canadian Pacific Railway Limited, together with its subsidiaries, owns and operates a transcontinental freight railway in Canada and the United States.The company transports bulk commodities, including grain, coal, potash, fertilizers, and sulphur; and merchandise freight, such as energy, chemicals and plastics, metals, minerals and consumer, automotive, and forest products.It also transports intermodal traffic comprising retail goods in overseas containers.


The company offers rail and intermodal transportation services through a network of approximately 13,000 miles serving business centers in Quebec and British Columbia, Canada; and the United States Northeast and Midwest regions.Canadian Pacific Railway Limited was incorporated in 1881 and is headquartered in Calgary, Canada.

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1.b. Last Insights on CP

Canadian Pacific Railway Limited's recent performance was negatively impacted by a disappointing Q2 earnings release, which missed estimates with earnings and revenue surprises of -1.22% and -4.08%, respectively. The company's debt burden increased with a C$1.4 billion debt offering, comprising C$500 million in 4.00% notes due 2032 and C$600 million in 4.40% notes due 2035. Additionally, the company's revenue growth was not as strong as expected, with revenues of $3.7 billion, diluted earnings per share (EPS) of $1.33 and core adjusted diluted EPS1 of $1.12.

1.c. Company Highlights

2. CPKC's Q4 Earnings: A Strong Finish to a Record Year

CPKC's fourth quarter revenue was $3.9 billion, up 1% from last year, with an industry-best operating ratio of 55.9%, a 120-basis-point improvement. Earnings per share were $1.32, slightly below estimates of $1.33. For the full year, revenue was $15.1 billion, up 4%, with volume growth of 4% and an operating ratio of 59.9%, an industry-best improvement of 140 basis points. Core EPS was $4.61, up 8%.

Publication Date: Feb -02

📋 Highlights
  • Operating Ratio Improvement: Q4 operating ratio reached 55.9% (120 bps improvement YoY), with full-year ratio at 59.9% (140 bps improvement), both industry-best metrics.
  • Core EPS Growth: Full-year core EPS rose 8% to $4.61, driven by efficiency gains and the elimination of Canadian carbon tax costs.
  • Capital Efficiency: 2026 CapEx reduced by 15% to $2.65 billion, alongside a new 5% share buyback program to enhance shareholder returns.
  • Volume and Revenue Growth: Full-year revenue grew 4% to $15.1 billion with 4% volume growth; intermodal revenue rose 3% on 4% volume growth.

Operational Highlights

The company achieved record results in several key metrics, including train weight, train speed, locomotive productivity, and car velocity. CPKC's network is running well and is positioned to execute on growth opportunities. Bulk revenue was up 4% in Q4, driven by record grain revenues, and intermodal revenue was up 3% on 4% volume growth, with international intermodal volumes up 5%.

Outlook and Growth Prospects

The company expects mid-single-digit volume growth in 2026, driven by a record grain harvest in Canada and the U.S., and low double-digit earnings growth. CPKC has invested in 200 new locomotives over the past two years and announced a 5% share buyback program for 2026. The company is optimistic about its growth prospects, driven by a strong bulk business, intermodal growth, and self-help initiatives.

Valuation and Metrics

With a P/E Ratio of 21.95 and an EV/EBITDA of 13.65, the market is pricing in a certain level of growth. The company's ROE of 9.57% and ROIC of 5.15% indicate a decent return on equity and invested capital. The Net Debt / EBITDA ratio of 2.75 suggests a manageable debt burden. Analysts estimate next year's revenue growth at 6.3%, which is slightly higher than the company's guidance.

Regulatory Environment and M&A

The company does not see reciprocal switching as a threat, but believes it needs to be fair and balanced. On M&A, the company's views remain the same, and it believes that the rejection of the application by the STB was due to the complex nature of the merger and its impact on the rail network. A potential UP-NS merger is seen as a net positive if it allows for fair competition.

Free Cash Flow and Capital Allocation

The company generated $5.3 billion in net cash from operating activities in 2025, up 1% year-over-year. Capital expenditures were $3.1 billion, above the $2.9 billion outlook. The company is reducing its 2026 capital outlook by 15% to $2.65 billion. A new 5% share repurchase program has been approved, indicating a commitment to returning capital to shareholders.

3. NewsRoom

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CPKC Holiday Train raises record $2 million, collects 175,000 pounds of food in 2025

Dec -23

Source:

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Does Canadian Pacific Kansas City’s 2025 Valuation Reflect Its Rail Merger Growth Prospects?

Dec -19

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CPKC statement on UP-NS merger application filing

Dec -19

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Here’s Who Wins From North American Rail Integration

Dec -19

Source: 247wallst.com

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RBC Sees Near Term Pressure on U.S. Rails

Dec -18

Source:

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TSX Closer: Down For a Second Straight Day Since Thursday's Record Finish

Dec -15

Source:

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S&P Revises Canadian Pacific Kansas City Outlook To Positive On Competitive Strength; BBB+ Rating Affirmed

Dec -15

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Canadian Pacific Continues to Grapple With Rising Expenses, Debt Woes

Dec -05

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (4.50%)

6. Segments

Rail Transportation

Expected Growth: 4.5%

Canadian Pacific Railway Limited's rail transportation services growth is driven by increasing demand for efficient logistics, a growing economy, and strategic investments in digitalization and infrastructure expansion, leading to a forecasted growth rate.

7. Detailed Products

Grain Transportation

Canadian Pacific Railway Limited provides grain transportation services to farmers and grain companies, offering a reliable and efficient way to move grain across North America.

Coal Transportation

The company offers coal transportation services to mining companies and power plants, providing a safe and reliable way to move coal across the continent.

Intermodal Transportation

Canadian Pacific Railway Limited offers intermodal transportation services, providing a seamless and efficient way to move goods in containers between ships, trains, and trucks.

Automotive Transportation

The company provides automotive transportation services to car manufacturers and dealerships, offering a safe and efficient way to move vehicles across North America.

Energy Transportation

Canadian Pacific Railway Limited offers energy transportation services, providing a safe and efficient way to move crude oil, liquefied petroleum gas, and other energy products.

Forest Products Transportation

The company provides forest products transportation services to lumber mills and paper companies, offering a reliable and efficient way to move forest products across North America.

8. Canadian Pacific Railway Limited's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Canadian Pacific Railway Limited is low due to the high barriers to entry and the lack of viable substitutes for rail transportation.

Bargaining Power Of Customers

The bargaining power of customers for Canadian Pacific Railway Limited is medium due to the presence of large industrial customers who can negotiate prices, but the company's diversified customer base and lack of dependence on a single customer mitigate this power.

Bargaining Power Of Suppliers

The bargaining power of suppliers for Canadian Pacific Railway Limited is low due to the company's large scale of operations and its ability to negotiate prices with suppliers.

Threat Of New Entrants

The threat of new entrants for Canadian Pacific Railway Limited is low due to the high barriers to entry, including the need for significant capital investment and regulatory approvals.

Intensity Of Rivalry

The intensity of rivalry for Canadian Pacific Railway Limited is high due to the presence of strong competitors in the rail industry, including Canadian National Railway Company, and the ongoing competition for market share and pricing power.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 35.23%
Debt Cost 3.95%
Equity Weight 64.77%
Equity Cost 7.82%
WACC 6.46%
Leverage 54.38%

11. Quality Control: Canadian Pacific Railway Limited passed 3 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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TransDigm Group

A-Score: 7.0/10

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Growth: 8.0

Quality: 6.7

Yield: 9.0

Momentum: 7.0

Volatility: 8.3

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CN Rail

A-Score: 5.6/10

Value: 3.3

Growth: 5.1

Quality: 6.5

Yield: 5.0

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Volatility: 10.0

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Union Pacific

A-Score: 5.5/10

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Quality: 6.5

Yield: 4.0

Momentum: 5.0

Volatility: 10.0

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Canadian Pacific Railway

A-Score: 5.2/10

Value: 3.0

Growth: 5.4

Quality: 6.4

Yield: 2.0

Momentum: 5.0

Volatility: 9.7

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Value: 2.9

Growth: 6.6

Quality: 6.6

Yield: 0.0

Momentum: 6.0

Volatility: 8.7

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

104.25$

Current Price

104.25$

Potential

-0.00%

Expected Cash-Flows